Tag: Pollution

Pittsburgh, June 9– A U.S. District Judge in Pittsburgh has granted a motion for judgment on the pleadings in favor of a school district, ordering a primary and excess insurer to defend the district in a pollution class action case. In The Netherlands Ins. Co., et. al. v. Butler School District, et. al., U.S District Judge Arthur Schwab interepreted pollution exclusions in the involved insurance policies as ambiguous because they did not specifically exclude pollution claims arising out of copper becoming “bioavailable.”

The school district had a general liability policy issued by Netherlands and an umbrella policy written by Peerless. The insurers sought a declaratory judgment in the Western District of Pa. that they had no duty to defend the district because the claims were within exclusions for “pollutants” and lead exposure.

Judge Schwab ruled that both The Netherlands Insurance Co. and Peerless Insurance Co. had to defend Butler Area School District and a prior superintendent, Dale Lumley, from parents’ claims against the district for concealing hazardous levels of lead and copper in one of the district’s elementary schools. The Court found the insurance policies’ general pollution exclusions were ambiguous enough to allow coverage and that the specific lead poisoning exclusions did not specifically reference copper.

In ruling on the parties’ cross-motions for summary judgment, Judge Schwab looked to prior decisions in lead paint cases which held that exclusions “arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants,’” did not sufficiently address the gradual chemical process by which the paint caused lead poisoning.

“These findings are similar to the facts, as here, where lead and copper are essentially components of the water system at Summit Elementary, which have degraded over time, thereby allegedly rendering the lead and copper bioavailable.”

The judge also held that without a specific copper exclusion, the insurers were bound to provide a defense in the underlying case, as there has been no factual decisions made as to whether the alleged injuries were caused by the lead, copper or both. He also ruled that the duty to indemnify would have to await those factual determinations in the underlying case.

Judge Schwab emphasized the bedrock premise that the duty to defend was broader than the duty to indemnify, and then concluded:

“The court will not countenance the insurers’ invitation to turn Pennsylvania law relative to the duty to defend on its head, so as to allow the potential exclusion of a single type of claim to relieve them of their duty to defend, when the law actually requires a defense when a single potentially covered claim is alleged.”

PITTSBURGH, Jan. 10– A federal judge from the Western District of Pa. has dismissed both bad faith and coverage claims in which a homeowner sought coverage for defective workmanship on the home as part of a demolition and rebuild.

Hyatt abandoned the house after gutting it, and the house, which had structural problems, was left unfinished. Wehrenberg submitted a claim the Metropolitan regarding the condition of the house, calling it “vandalism.” Metropolitan denied the claim and Wehrenberg filed suit, claiming both breach of contract and bad faith.

Relying on policy language, Metropolitan moved for summary judgment on all claims on the following grounds: (1) the loss was not “sudden and accidental direct physical loss or damage” under the terms of the Policy, (2) even if the loss is covered, the insured did not timely notify Metropolitan of the loss, and (3) the damages claimed were explicitly excluded from coverage under the Policy, which did not cover construction related damage, and stated that the insurer was not responsible to pay for vandalism if the property was vacant for more than thirty days.

In granting the motion for Metropolitan, Judge Hornak held:

“First, the Court concludes that Plaintiff cannot, on the record before the Court, meet his burden of proving that his loss is covered by his Policy in the first instance. The Policy specifically provides that Defendant will only cover “sudden and accidental direct physical loss or damage to [Plaintiff’s] property.”. . . Under Pennsylvania law, “sudden and accidental” “mean[], respectively, ‘abrupt’ and ‘unexpected or unintended.'” U.S. Fire Ins. Co. v. Kelman Bottles, 538 F. App’x 175, 181 (3d Cir. 2013).”

The judge also dismissed the bad faith claims made by the insured, holding:

“In this case, as explained, there is no viable breach of contract claim, so the first part of Plaintiff’s bad faith claim cannot succeed. Second, Plaintiff argues that Defendant acted in bad faith by failing to adequately investigate his claim. In his papers, Plaintiff lists a variety of ways in which he asserts Defendant’s investigation was inadequate, including that Defendant did not conduct enough interviews to uncover the facts of the case and that Defendant did not look into allegedly stolen tiles brought into the house. ECF No. 88 at 12. Defendant however, asserts that an adequate investigation was conducted and that it included an inspection of the house, interviews of Plaintiff and Hyman, consultation with its legal counsel, and the taking of Plaintiff’s Examination Under Oath. ECF No. 82 at 20. Plaintiff’s claim ultimately fails because he has not cited to anything in the record to support his argument—he merely alleges problems existed without providing any record evidence to prove them.”

GEORGIA, May 26– The Georgia Supreme Court has ruled that a CGL policy pollution exclusion bars coverage for claims against the insured landlord for injuries resulting from lead paint ingestion.

In Georgia Farm Bureau Mut. Ins. Co. v. Smith, 784 S.E.2d 422 (Ga. 2016) the insurer sought a declaratory judgment that it did not owe defense or indemnity to its insured landlord in an underlying suit against the landlord by a tenant who claims she sustained as a result of ingesting lead paint in a rental home. Georgia Farm Bureau relied on an absolute pollution exclusion in the policy. The exclusion by its terms did not cover injury “arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants.’” The policy defined “pollutants” as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.”

The insurer won summary judgment on the exclusion at the trial court level, the court holding that lead-based paint was unambiguously a “pollutant” as defined in the policy. An appeals court reversed, observing a split in jurisdictions, noting that some jurisdictions applied the exclusion only in instances of “industrial pollution.” The insurer appealed.

The Georgia Supreme Court reversed, finding that the absolute pollution exclusion applied from injury arising from exposure to lead-based paint.

MICHICAN, May 31– The Michigan Supreme Court refused to address or overturn a lower court’s determination that smoke from an apartment complex fire doesn’t constitute a pollutant within the meaning of a pollution exclusion in a commercial general liability policy. The effect of the ruling leaves a judgment against XL Insurance in place.

Plaintiffs Charlie and Mary Hobson sued apartment owners as well as XL after sustaining injuries in an apartment fire. The Hobsons claimed that XL wrongfully denied insurance coverage to the apartment entities. XL had sought a ruling that smoke related injuries, including smoke inhalation arising out of an apartment fire, constituted excluded pollution related losses within the meaning of the landlord’s CGL policy. The Hobson’s responded that smoke related losses were a component of the fire, clearly contemplated by the CGL coverage, and were not within the pollution exclusion. The trial court denied the insurer’s motion for summary disposition and a three-judge panel of an intermediate appeals court affirmed.

The state supreme per Justice Brian Zahra court declined to hear the matter:

“[W]hile this case presents an interesting question of contract interpretation, because the record is undeveloped with regard to what constitutes a discharge, dispersal, seepage, migration, release, or escape [of pollutants] under the endorsement, I agree with my colleagues that leave should be denied.”

Charlie B. Hobson et al. v. Indian Harbor Insurance Co. et al.(Mich 2016, case number 151447). A link to the prior Court of Appeals opinion can be found here.

PHILADELPHIA, May 27 — The Third Circuit last week ruled that Nationwide Insurance properly terminated its defense of a group of insured homeowners, finding that it had properly reserved its rights to do so.

Randy and Erin Shearer sued a group of homeowners, claiming that the owners permitted sewage to leak onto the Shearer’s property, an 18 acre parcel of land they intended to develop. Nationwide defended the homeowners under a reservation of rights, and eventually cancelled coverage and withdrew its defense.

The insurer issued several reservation communications to its insureds, stating that coverage was subject to a reservation of rights, and pointing out pollution exclusions in the policy, and exclusions for biological deterioration.

Nationwide filed suit in 2014 claiming it owed the homeowners no defense, citing the pollution exclusion. The homeowners did not contest the exclusion, but rather claimed prejudice from Nationwide’s decision to terminate their defense. The U.S. District Court for the Eastern District of Pa. found in favor of Nationwide, ruling that the reservation of rights letters entitled Nationwide to withdraw its defense.

In affirming the district court, Circuit Judge Thomas Hardiman wrote:

“While they were understandably disappointed by Nationwide’s decision to withdraw its defense, the fact that it was entitled to do so under the terms of the insurance contracts means that the defense it did tender was a temporary benefit to the policyholders. . . The fact that Nationwide defended the case for some time before citing an exclusion and denying coverage does not somehow turn the defense it did provide into fraudulent inducement. . . Nor does it turn the policyholders’ decision to allow Nationwide to provide them with a defense into detrimental reliance.”

RALEIGH, N.C., March 29 — A North Carolina federal judge ruled as a matter of law that several insurers had no duty to defend its insured under certain of its policies for two underlying environmental contamination claims, finding no plausible allegation of sudden and accidental release of contaminants which would have triggered coverage.

PCS Phosphate Co. Inc.sought a declaratory judgment for defense and indemnity from American Home Insurance in two underlying actions alleging environmental contamination. American Home joined Zurich American Insurance Co. and Federal Insurance Co., seeking contribution and indemnity related to the defense and indemnity of PCS.

Between 1978 and 2002, PCS and its predecessor Texasgulf Inc. sent transformers to facilities in North Carolina for repairs. During the transformer repairs, PCBs were released, resulting in an E.P.A. investigation on the site. The E.P.A. ultimately settled with certain potentially responsible parties (PRP’s) following an investigation launched in 2003.

In April 2008, PCS advised American Home that PCS had been identified as a potentially responsible party for the contamination, and sought defense and indemnity in any related litigation. In April 2009, some of the PRP’s sued PCS, seeking contribution and reimbursement for costs related to their settlement with the E.P.A.

American Home accepted the defense of PCS in the Consol and CP&L actions pursuant to a reservation of rights.

Judge James C. Dever III granted Zurich American’s motion for partial judgment on the pleadings.with respect to its duty to defend or indemnify PCS in the underlying actions against PCS. Judge Dever ruled that American Home had not met its burden “to show that an allegation in either underlying complaint can be reasonably interpreted to allege a sudden release of contaminants or pollutants at the [site]” which would have triggered coverage under the Zurich American policy.

He wrote further, “American Home has not plausibly alleged that either the 1981-1986 policies or the 2005-2008 policy oblige Zurich American to contribute to PCS’s defense or indemnification in either of the underlying actions. Thus, the court grants Zurich American’s motion for partial judgment on the pleadings concerning both the Consol and CP&L actions.”

BROOKLYN, N.Y., March 2 — The Second Department of the New York Supreme Court Appellate Division has held that a negligence claim alleged against an insurer in a dispute regarding the remediation of oil contamination should have been permitted to proceed, reversing the trial court’s dismissal of the claim.

In Richard Bennett, et al. v. State Farm Fire and Casualty Co., Plaintiff Richard Bennett and his family sustained a home heating oil spill in 2011. Bennett’s house at the time was insured by State Fire Farm and Casualty Co., and the policy included a third party liability claim protection. State Farm paid for remediation overseen by the NY State Dept. of Environmental Conservation, which acted as the third party claimant because of the spill.

A dispute arose, and Bennett sued a number of parties involved in the remediation, including State Farm. The trial court granted State Farm’s motion to dismiss claims against it, including a claim that H2M, a remediation contractor allegedly supervised and directed by State Farm, acted negligently in the cleanup.

While the Appellate Division affirmed the trial court’s ruling as it pertained to fraud, breach of fiduciary duty, and punitive damages claims against State Farm, it ruled that a negligence claim against State Farm was viable:

“The complaint also alleges that State Farm supervised and directed the work of H2M, potentially giving rise to vicarious liability on the part of State Farm for negligence, if any, of that contractor…Under these circumstances, the complaint states a cause of action for negligence against State Farm.”

Editor’s Note: Extracontractual avenues of liability on the part of insurers continues to evolve. Insurers must take care to place the necessary protective layers between themselves and third party repair and remediation vendors. If they do not, they risk negligence liability on vicarious liability theories.

Author / Editor

C.J. Haddick is a Director with the law firm of Dickie, McCamey, & Chilcote, PC, based in Pittsburgh, Pa.

He has advised and represented insurers in insurance coverage and bad faith litigation for more than a quarter of a century, and written and spoken throughout the United States on insurance coverage and bad faith prevention and litigation.

He is Managing Director of the firm's Harrisburg, Pa. office. Reach him atchaddick@dmclaw.com or 717-731-4800.